Rental Yield
Definition
The annual rental income from a property expressed as a percentage of the property's value, used to evaluate real estate investments. Gross yield excludes expenses; net yield includes them.
Rental yield measures the income return on a real estate investment. Gross rental yield is simple: (annual rent / property value) x 100. A property worth $300,000 that rents for $2,000/month ($24,000/year) has an 8% gross yield. Net yield subtracts expenses (taxes, insurance, maintenance, vacancies, management) from rental income before dividing.
The gap between gross and net yield is significant. Operating expenses typically consume 35-50% of gross rent. That 8% gross yield property might have a 4-5% net yield after expenses — still attractive compared to many alternatives, but very different from the headline number.
The "1% rule" is a quick screening tool: a property should rent for at least 1% of its purchase price monthly. A $200,000 property should rent for $2,000+/month. Properties meeting this threshold are more likely to generate positive cash flow. In expensive markets (San Francisco, New York), very few properties meet the 1% rule.
Cash-on-cash return is more meaningful than yield for leveraged investors. If you buy a $300,000 property with $60,000 down and earn $6,000/year in net income, your cash-on-cash return is 10% ($6,000 / $60,000) — much higher than the 2% net yield on total property value. Leverage amplifies returns (and risks).
Rental yield is one component of total return. Real estate investors also benefit from: appreciation (property value growth), principal paydown (mortgage amortization builds equity), tax benefits (depreciation, deductions), and inflation hedging (rents typically rise with inflation). Evaluating only yield misses the full picture.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
What's a good rental yield?
Net rental yields of 5-8% are generally considered good in the current market. Gross yields of 8-12% are strong. However, good yield depends on location, property condition, and your investment goals. High-yield properties in declining areas may have more risk than lower-yield properties in growing markets.
How is rental yield different from cap rate?
They're very similar but used differently. Cap rate uses net operating income (before debt service) divided by property value — it evaluates the property independent of financing. Rental yield can be gross or net and is more commonly used for individual residential properties. Cap rate is standard for commercial real estate.